UPDATE: 2pm
The U.S. State Department said Wednesday it would work with whatever new government is formed in Israel, Haaretz reports.
At a Washington press conference, [State Department spokesman Robert] Wood said that the Obama administration will not speculate on what kind of government will be formed. Wood called Israel a thriving democracy and said the administration intends to pursue a robust agenda once the new Israeli leadership is established.
"The government needs to be formed. We will hold discussions with the government once it's in place. The important thing is we're looking forward to [working] with whoever heads it. It's up to the Israeli people, not the Israeli government, who will be in it," he said.
Wood also said that U.S. Middle East envoy George Mitchell still plans on making a second trip to Israel in the near future to discuss the peace process.
Meanwhile, Reuters reports that Palestinians have not expressed support for the next Israeli government. It states that Palestinians "reacted gloomily" to the results as fear mounted that the Israeli government would become more right-wing.
"I am not optimistic about the next Israeli prime minister. They have different faces but the same policy. Livni or Netanyahu -- who would think of giving Palestinians their land back?" said Osman al-Natsheh, a shopowner in Hebron.
"Israelis voted for the right and against peace. We will not see progress in the peace process in the coming years," said office employee Ali Zaidan in Ramallah, the seat of Palestinian Authority in the West Bank.
A Jordanian blogger, Naseem Tarawnah, writes that no matter who successfully becomes Israel's next prime minister, the Palestinians lose.
When it comes to the political landscape of the Arab-Israeli conflict, the only thing more insignificant than an American election is an Israeli election. The outcome of these campaigns, which seem to bathe in the limelight of the world stage, tend to have worse consequences for the Middle East almost every time. Both Netanyahu and Livni are different shades of the same gray area that has continued the ongoing legacy of devastation since 1948. Neither truly believes in giving Palestinians statehood or any of their land back, and neither has worked towards achieving any of the peace goals.
However, Reuters also reports that Palestinian Authority President Mahmoud Abbas said he was not concerned about the election results and said the rise of the Israeli right "does not worry us."
"In whatever form, the government, once in power, will ultimately end up with responsibility, pragmatism prevailing."
FROM EARLIER:
With Israel's election results proving inconclusive, leaders of both the Kadima and Likud parties have begun talks with other party leaders to discuss forming a coalition. It could be weeks before Israel has a new prime minister, the Guardian reports.
Voting in Israel is done on a system of party lists chosen by proportional representation. This year, 33 separate parties stood for election. A coalition government is almost inevitable, but requires a long period of behind the scenes negotiating and bargaining.
In a week, after the official results are formally published, the Israeli president Shimon Peres will meet with the heads of all the parties and ask who they think ought to form the next government. He will then choose one MP who he thinks is most likely to form a majority coalition - not necessarily the leader of the largest party - and will set him or her the task. Whoever is chosen then has 42 days to draw up that coalition.
Kadima leader Tzipi Livni held talks Wednesday with Israel Beiteinu leader Avigdor Lieberman, and Likud chairman Benjamin Netanyahu met with Shas leader Eli Yishai, the Jerusalem Post reports.
"This is an opportunity for unity in which we can advance issues that are also important to you," Livni said to the Israel Beiteinu chairman. The two agreed to meet again.
Speaking to his faction following the meeting, Lieberman stressed the need for the swift formation of a new government "that can make decisions." He went on to say that "the country has been paralyzed for six months with municipal elections, [general] elections and now with forming the government. Such a government cannot deal with the burning economic and security issues," he said.
Lieberman didn't rule out joining a coalition led by Livni, stating that he was "checking [both Livni's and Netanyahu's] stances on the issues we care about," and reiterating Israel Beiteinu's ambition to "contribute to forming a government as soon as possible."
Lieberman, considered an anti-Arab hawk, is seen as the potential kingmaker in this election because his party came in third, securing 15 seats, reports Al Jazeera English.
Menachem Hofnung, a professor of political science at Hebrew University, said "it is up to Lieberman who will form the next coalition".
"Lieberman has emerged as the kingmaker. He is the winner of this election, and it depends on who he sides with over the next few weeks as to who will be prime minister."
An analysis in Haaretz reports that left-wing voters who supported Livni may have been greatly disappointed to wake up this morning to the news that she was courting Lieberman. However, it reports, "Without Lieberman, Livni has no government."
Even with the Yisrael Beiteinu chairman, Livni's ability to form a government is in great doubt.
Livni won a major victory yesterday. She beat Benjamin Netanyahu's Likud, which had been leading in the polls until the last minute. The election had boiled down to Tzipi vs. Bibi, and the public decided in favor of Livni. Even if Netanyahu does end up forming the government, he sustained a stinging blow yesterday.
Another article in Haaretz reports that Netanyahu is also planning on meeting with Lieberman, who has left his options open but has said he preferred a "nationalist" government, which would indicate support for Likud.
Lieberman's party has also signaled they are open to talks with the ultra-Orthodox Shas party, according to Haaretz.
Sources in Yisrael Beiteinu said Wednesday their party was not ruling out joining a coalition that included Shas. The announcement came despite Lieberman's pledge Tuesday that he would not forget Shas' attacks on his party and himself.
On Saturday night Shas spiritual leader Rabbi Ovadia Yosef said that, "Whoever votes for Lieberman gives strength to Satan."
Should the two rightist parties succeed in putting their antagonism behind them, Netanyahu would likely find coalition-building significantly easier.
For a better understanding of how Israeli politics work, check out the Council on Foreign Relations backgrounder:
Seats in Israel's legislative assembly, the Knesset, are assigned through a system of nationwide proportional representation: Rather than electing individual candidates, voters cast ballots for an entire party. Any party receiving more than 2 percent of the vote is assigned a proportional number of seats in the 120-member legislature. Prior to the general election, each party holds an internal election to decide on a list of representatives to occupy any seats the party should win. If, for instance, a party wins ten seats, the first ten names on the slate will become members of the new Knesset. Each Knesset is expected to serve a four-year term. However, if a majority of the representatives agree, they may elect to dissolve the body and hold early elections. The legislature's tenure may also be prolonged beyond four years, though this requires a "special majority" of eighty votes. The Knesset elects the prime minister, and also holds the power to remove the president. New laws require a simple majority vote.
The prime minister is elected by the Knesset. A prime-ministerial candidate must be a member of the Knesset and needs a simply majority of votes to be confirmed. Prime ministers are expected to serve four-year terms, though these may be shortened by a vote of no confidence in the Knesset. Such votes name a replacement candidate, who is given the opportunity to form his or her own government.
To form a new government, a prime minister is given forty-five days to fill cabinet positions and win Knesset approval. Since no single party has ever won a majority of the seats in the Knesset, this requires forming a coalition with other parties in order to win majority approval. In forming a coalition, the prime minister must offer some cabinet positions to members of the smaller coalition partners, as smaller parties often represent the additional votes needed to pass legislation. These smaller parties tend to use this influence to further their political agendas.
If a replacement candidate is unsuccessful at forming a new government, the Knesset is dissolved and new elections are held.
Read more from the backgrounder here.